Balloon framing is an older method of construction used to frame buildings (typically pre-1940) where the studs in the bearing walls run uninterrupted from the sill plate on the top of the foundation wall up to the roof plate. The floor joists are then nailed onto the studs.
This style of framing is no longer used; in large part because of the open cavities it creates in the wall that can act like a “chimney” allowing any fire that beaks out in the basement (or first floor) to rapidly travel upwards to floors above and into the attic.
Today, “Platform Framing” is used in residential home construction where the frame of the building is raised one story at a time, with stud walls that are a single story high. The stud walls for each story are set over the underlying joists and sub-floor; the joists for subsequent floors lie on the top plate of the stud walls below.
If you own or are purchasing an older home with “balloon framing” there are likely steps you should take to minimize the risk of fire spreading rapidly in that home. You should also inform your insurance company to ascertain what concerns they have with balloon framing, if any.